Sometimes small mistakes can be the cause of much more extreme reactions. Many say that investors have a herd mentality, and while this is not necessarily true, there are times when the actions of the market seem indistinguishable from a fearful mob. Recently, a simple typo helped send all major indexes plummeting for the day.

Now this sort of mistake is rare, but it does highlight many of the issues inherent in the financial system. Not only does human error play a large factor, but the dissemination of information does as well. Risk in the system is largely the result of factors investors cannot simply take account of, like human error. No one could expect that an institutional holder would accidentally sell off billions of dollars Procter and Gamble (PG) instead of millions. But the reaction of the market is where the real problem lies.

 The problem is inherent, and most likely impossible to fix. It is based in the speed necessary for many investors, especially the big guns on Wall Street. They need to move around large accounts based on the slightest hint that there are opportunities or dangers. As such, when the accidentally large sale happened it sent large, worried shockwaves to anyone looking at the market. When people are poised for quick movement at danger, which is a requirement of the job, reacting is more important than second-guessing.

This reaction, which happened Thursday, May 6th, dropped PG by over $2.00 and the downturn lasted a little over one day. The fear investors faced was magnified due to limited sources of information. Namely, when news is fresh, it leaks among those that receive it, but may not have reached the ears of other news outlets yet. As such, there is little to no opportunity to review this information, or in this case, why so many shares were sold.

The speed of information dissemination is only limited by the speed at which one can write about it. This however does not guarantee quality information. Everyone involved or interested knew what had happened, but few knew why. Thus, the first wave of knowing set off the run to sell PG stock, since it is best to be quick and safe than to be too slow. The second wave came much later, as investigation produced the truth, which sent the stock back up as if nothing had happened.

PG, having a spectacularly bad day, was hit by more than just accidental selling. Since information sharing is so powerful, it gives many more people the opportunity to have their voices heard. Unfortunately, since anger and fear a such primal emotions, they carry much weight even if unjustified or unverified. When an angry mothers words came out so strongly against PGs Pampers With Dry Max through her blog and was carried by her supporters, the negative attention received was terrible.

In uncertain economic times, where both individuals and companies are frequently feeling in danger, a small spark is needed for the fire. In this case it was simply accusations by a mother concerning diaper rash that made the call to arms and created a large lash-back against PG. This unfortunately culminated into a class action lawsuit and played into the large drop that occurred.

All in all, the market moves as best it can, but these movements may not necessarily be based on truth. This is all the more true in penny stocks, where the hint of success or failure creates huge waves. The markets are unpredictable, but they trend based on the information available, and misunderstandings are corrected quickly after the truth is clear. Keep your ears to the ground and you can be the first to react to te real news, not just the hype of fear.